GLOBAL MARKETS-Currencies, stocks rebound after China scare

                                
   * Global stocks edge higher on economic sentiment
                                
 * Euro, commodity currencies rebound; yen slides
                                
 * Oil falls below $80 as U.S. inventories rise
                                
 * U.S. Treasuries prices drop before 10-year auction
 (Updates with U.S. markets, changes byline, dateline, previous
LONDON)
                                
 By Herbert Lash
                                
 NEW YORK, Jan 13 (Reuters) - Stocks mostly gained while the
euro and higher-yielding currencies rebounded on Wednesday on
sentiment that China's surprise monetary tightening the
previous session actually confirms a broad economic recovery.
                                
 Gold steadied as declining oil prices offset the positive
effect of a weaker U.S. dollar, which earlier helped the
precious metal recoup some of a 2 percent drop on Tuesday. For
details see [ID:nLDE60C0SB].
                                
 Commodity-linked currencies such as the Australian dollar
regained some ground and the price of copper, driven in large
part by Chinese demand, bounced off two-week lows, supported by
a weaker dollar. [ID:nN13128049] [ID:nLDE60C0T8]
                                
 "Today we are seeing a retracement and the realization that
the impact of China's bank moves won't be so detrimental to the
global growth scenario," said Omer Esiner, senior market
analyst at Travelex Global Business Payments in Washington.
                                
 To be sure, gains were limited as investors worried that
China's effort to withdraw liquidity as economies recover,
along with central banks' focus on inflation risks, could
prompt the unwinding of positions in perceived riskier assets.
                                
 "Commodity currencies are on a much better footing today
but what happened in China is a reminder that they are
vulnerable," Esiner said.
                                
 U.S. stocks rose, lifted by a broker's upgrade of Merck &
Co <MRK.N> and a higher profit outlook from Kraft Foods Inc.
<KFT.N> [ID:nN13220116] Merck, up 4.1 percent, was the biggest
boost to the Dow.
                                
 Major indexes had briefly turned negative after a report
from the U.S. Energy Information Administration showed crude
oil stockpiles rose more than expected, a bearish sign for
demand in the world's largest energy consumer.
                                
 Shortly after midday, the Dow Jones industrial average
<.DJI> was up 43.99 points, or 0.34 percent, at 10,663.84. The
Standard & Poor's 500 Index <.SPX> was up 5.11 points, or 0.45
percent, at 1,141.33. The Nasdaq Composite Index <.IXIC> was up
8.12 points, or 0.36 percent, at 2,290.43.
                                
 European shares closed higher. Drugmakers and food
companies rose while banks fell on a profit warning at Societe
Generale <SOGN.PA> and oil firms were hurt by weaker crude.
[ID:nLDE60C1MU]
                                
 The pan-European FTSEurofirst 300 <.FTEU3> index rose 0.2
percent to close at 1,056.49 after going in and out of positive
territory several times during the session.
                                
 In Britain, weakness in heavyweight commodity and banking
issues countered gains in selected defensive stocks.
                                
 The FTSE 100 <.FTSE> slipped 0.5 percent to 5,473.48.
                                
 In Europe, bund futures erased losses and German government
bonds outperformed their euro zone counterparts as investors
sought the safety of the region's benchmark paper due to
concerns about Greek public finances. [ID:nLDE60C1ZE]
                                
 "The market is still a little bit all over the place,
spooked slightly by the Greek prime minister's comments in the
afternoon that the country can go its own way without the IMF,
and by a drop back by crude after a jump in inventory data,"
said Nick Serf, market analyst at City Index.
                                
 Oil dropped below $80 a barrel to its lowest this year,
pressured by a U.S. inventory report that showed increases in
crude and distillate fuel stocks despite severe winter weather.
[ID:nSGE60C05S]
                                
 Crude stocks, expected to rise 1.2 million barrels,
increased by 3.7 million, the Energy Information Administration
said. Inventories of distillates, forecast to fall, rose by 1.4
million barrels.
                                
 "It's a bearish report that points back to weak underlying
fundamentals in the domestic petroleum market," said Gene
McGillian, analyst at Tradition Energy in Stamford,
Connecticut.
                                
 U.S. Treasuries slipped as traders took profits and
positioned themselves for a large 10-year Treasury note
auction. [ID:nN13450701]
                                
 The dollar was down against a basket of major currencies,
with the U.S. Dollar Index <.DXY> down 0.16 percent at 76.828.
                                
 The euro <EUR=> was up 0.10 percent at $1.4509, and against
the yen, the dollar <JPY=> was up 0.40 percent at 91.31 yen.
                                
 U.S. light sweet crude oil <CLc1> fell 89 cents to $79.90 a
barrel.
                                
 Spot gold prices <XAU=> rose $3.85 to $1,131.10 an ounce.
                                
 The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 11/32 in price to yield 3.76 percent compared with 3.72
percent late Tuesday.
                                
 In Asian markets the Thomson Reuters index of regional
shares <.TRXFLDAXPU> was down almost 1 percent, while Japan's
Nikkei <.N225> closed down 1.3 percent.
 (Reporting by Ryan Vlastelica, Vivianne Rodrigues and Ellen
Freilich in New York and David Sheppard, Alex Lawler and Jan
Harvey in London; Writing by Herbert Lash; Editing by James
Dalgleish)